Easing US Inflation and Potential Federal Reserve Rate Cuts: A 2024 Outlook
US Inflation Trends and Federal Reserve’s Outlook
In what marks a significant turn of events, key indicators have signaled that underlying price pressures in the United States are easing. This aligns with the Federal Reserve’s optimistic outlook for inflation. The consumer price index (CPI), excluding food and energy, was projected to show a 3.8% increase in December 2023 from the previous year. This marks the smallest annual rise since May 2021, reflecting the progress made in controlling the rapid inflation experienced throughout 2022.
Possibility of Reduced Borrowing Costs
During their December meeting, Federal Reserve officials acknowledged that interest rates might have reached their peak. They hinted at the possibility of reducing borrowing costs during 2024, although they emphasized the continued need for a restrictive policy stance. This stance is necessary until a sustained decrease in inflation becomes evident. Despite the easing inflation, core CPI inflation is predicted to remain above the Fed’s 2% target through 2024, as per Bloomberg Economics analysts. The upcoming government CPI report and the producer price index (PPI) will provide more insights into inflation trends.
Global Economic Figures and Central Bank Decisions
Internationally, key economic figures and central bank decisions will keep investors engaged. Growth data from the UK, Germany’s industrial numbers, and rate decisions in South Korea and Peru are expected to be in focus. In Asia, the Bank of Korea’s rate decision and Japan’s consumer price data will be in the limelight. Meanwhile, Europe is keenly awaiting Germany’s factory orders and production numbers. Additionally, central bank decisions in Eastern Europe, along with inflation data from Hungary and Russia, are expected. Africa’s Ghana, too, will be under the radar, as it is anticipated to report a deceleration in inflation.
The US economy fared well in 2023, with high spending, market gains, and signs of cooling inflation. The Federal Reserve’s battle against inflation showed signs of progress, as the job market remained strong and consumer spending stayed robust. Inflation cooled significantly, while wages rose throughout the year. The Federal Reserve only raised rates at four of its eight meetings in 2023, with recent comments from Chair Jerome Powell suggesting that rate cuts may be coming in 2024.
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